Welcome to the Advance Auto Parts second quarter conference call. Before we begin, Elisabeth Eisleben, Senior Vice President, Communications and Investor Relations, will make a brief statement concerning forward-looking statements that will be discussed on this call. Good morning, and thank you for joining us to discuss our second quarter 2022 results. I'm joined by Tom Greco, our President and Chief Executive Officer, and Jeff Shepherd, our Executive Vice President and Chief Financial Officer. Following their prepared remarks, we will turn our attention to answering your questions. Before we begin, please be advised that our remarks today will contain forward-looking statements. All statements other than statements of historical fact are forward-looking statements, including, but not limited to, statements regarding our initiatives, plans, projections, and future performance. Actual results could differ materially from those projected or implied by the forward-looking statements. Additional information about factors that could cause actual results to differ can be found under the captions "Forward-Looking Statements" and "Risk Factors" in our most recent annual report on Form 10-K and subsequent filings made with the commission. Now, let me turn the call over to Tom Greco. Thanks, Elisabeth, and good morning, everyone. Before we begin, I'd like to thank our entire Advance team and Carquest independent partners for their dedication throughout Q2. Thanks to their relentless focus on improving the customer experience and disciplined execution of our strategy, we delivered double-digit adjusted diluted earnings per share growth in the quarter. I'll begin my remarks today with a review of our Q2 performance, as well as the factors that led to the revisions made to our full year guidance outlined in our press release. I'll then discuss the consistent progress we're making on our primary strategic initiatives before turning it over to Jeff to review our Q2 financial performance, including an update on cash returns to shareholders. In the second quarter, we remained focused on the execution of our strategy. Consistent with this, we delivered another quarter of growth in net sales and adjusted operating income, underscored by adjusted operating income margin expansion. Q2 2022 was our ninth consecutive quarter of year-over-year adjusted diluted EPS growth, including a 10% increase versus Q2 2021. Notably, Q2 adjusted diluted earnings per share of $3.74 was a quarterly record for Advance Auto Parts and grew 72% on a three-year stack when compared with Q2 2019. We continue to invest in our business while returning approximately $700 million in cash to our shareholders in the first half of 2022. Our comparable store sales declined by 0.6% in Q2 while increasing 12.7% on a three-year stack. As we're now opening new locations to expand our footprint, our net sales grew faster than comp sales and were up 0.6%. Our deliberate move to increase own brand penetration, which carries a lower absolute price point, reduced both net and comp sales by approximately 1% with a disproportionate impact to professional. Moving to margins, we're pleased that we were able to deliver a 166 basis point increase in our adjusted gross margin rate in Q2. A key element of this improvement is the execution of our strategic shift to own brands within our product mix, as just mentioned, which provides a much higher margin rate. In Q2, owned brands as a percent of overall product mix were up over 200 basis points. As expected, our elevated SG&A costs year-over-year partially offset our adjusted gross margin expansion. Overall, in Q2, our 11.7% adjusted operating income margin was the highest quarterly rate Advance Auto Parts has reported in seven years. I'll now shift to more details on our sales performance in the quarter and the factors that led to our updated guidance. After a late spring contributed to a stronger sales at the start of the quarter, comp sales softened and turned negative with final results below our expectations, primarily driven by DIY. In terms of category growth, fluids and chemicals, including motor oil as well as batteries and brakes, were the top performers in Q2. Our regional sales performance was led by the Mid-Atlantic and West regions. While we contemplated several external factors when we provided our initial 2022 guidance in February, increased inflationary pressures, particularly in fuel, were well above our planned estimates in the second quarter. Rising inflation and significant year-over-year cost increases are having a disproportionate impact on the discretionary spending of our core DIY consumer. As a result, our low single-digit net sales decline in the quarter in DIY drove our sales shortfall in the quarter. There are a couple of factors to consider surrounding how a more challenging economic environment impacts the DIY customer. First, the majority of DIY jobs are considered non-discretionary. In this case, DIYers must address the problem and repair their vehicle as soon as possible. These are what we call break fix or failure related categories. Failure or non-discretionary DIY categories like batteries and brakes performed well in Q2. On the other hand, some categories are more discretionary and therefore can be deferred. As an example, in Q2, we saw softness in appearance chemicals and accessories, which were some of our better performing categories during the height of the pandemic. As we enter the back half of 2022, we expect continued softness in DIY discretionary categories. Despite recent moderation in fuel prices, overall inflation, including fuel, remains substantially higher than 2021, which we expect will pressure the DIY customer. This is the primary driver of our updated guidance. Separately, as we consider our balance of year guidance and sales outlook, the biggest opportunity we have to build shareholder value is to complete the integration of AAP and grow our margins. As we've consistently communicated, we remain laser focused on these objectives and are executing our plan. This includes a relentless focus on category management, which is our largest initiative to drive profitable growth. As part of category management, our new strategic pricing tools are fully implemented. We're now leveraging the enhanced capabilities these tools have to offer, which enables us to differentiate pricing by category, region, store, and customer. We've also significantly improved visibility into the return on investment surrounding our discounting practices by leveraging advanced analytics to gain insights on the competitive landscape and evaluate our strategic pricing actions. This is helping determine the quantitative and qualitative effectiveness of these actions. On the professional side, we're now able to measure sales lift on different levels of discounting real time and at a much more granular level. Knowing price is not the most important driver of choice for professional customers, we're becoming more disciplined in eliminating unprofitable discounts. An important byproduct of this strategy enables us to redeploy resources to enhance our service to our most loyal and fastest-growing customers. Our disciplined pricing strategy is an important value driver, which we expect to contribute to further margin expansion over the long term. In the short term, we expect this may result in temporary sales softness in our professional business in the back half, which we factored into our updated guidance. We firmly believe this is the right approach for AAP to drive sustainable top-line growth and margin expansion. Looking forward, while we're cautious about the consumer and macroeconomic outlook, we remain bullish on the resilience of our industry and the disciplined execution of our strategy. At an industry level, key drivers of demand remain positive, including the outlook for the car park, an aging fleet, and vehicles entering the sweet spot. A critical variable we're watching closely is miles driven, which in Q2 still remains slightly above 2021 levels. I'll now briefly discuss the progress we've made on some of the drivers of total shareholder return outlined in our April 2021 strategic update. An important driver of our TSR agenda is to deliver profitable growth while building sustainable capabilities to drive long-term competitive advantage. Starting with professional, our long-term growth strategy concentrates on what our customers value most, extensive parts availability, outstanding customer service, and reliability of delivery. We offer customers a comprehensive multi-brand assortment of high-quality national brands, own brands, and OE parts, ease of ordering, as well as consistent, reliable delivery. By leveraging enterprise assets, we're strengthening our value propositions with the tools our customers need to grow their business profitably and ensure they have the right part at the right time. As we grow together with Pro customers, we continue to add important program elements to help our customers compete. New vehicle technologies such as hybrid and electric, along with an industry-wide technician shortage, creates challenges for professional customers. This led us to create enhanced training and technology platforms that help customers provide comprehensive repair services and recruit technicians. Our focus to strengthen the Pro customer value proposition is demonstrated by growth in our strategic accounts and TechNet customers. The successful rollout of DieHard batteries in professional garages continues to drive sales growth and bring new customers to these large accounts. Carquest branded parts are also gaining momentum as a result of their high quality, evidenced by very low return and defect rates. Separately, we're continuing to leverage Worldpac's best-in-class model for professional customers across the enterprise. Reliable delivery is vitally important and enables installers to more effectively schedule technicians and provide their customers with accurate service times. Now, when an order is created, we've enabled all of our digital platforms to provide delivery times like Worldpac has done for many years. In DIY omni-channel, our number one priority is to ensure our customers have the parts they need to do the complete job. We continue to work on improving store in-stock rates as global supply chain constraints moderate. This includes adding more depth of parts in the front room and leveraging our dynamic assortment tool to improve parts availability for the complete job. Our highly regarded owned brands are a differentiator for Advance. Specific to DieHard, we continue to build this brand and delivered another quarter of double-digit sales growth. This ongoing strength is due in part to the successful launch of DieHard hand and power tools, as well as our latest product innovation, the exclusive DieHard EV and hybrid battery. In terms of building awareness and increasing loyalty, the enhancement of our Speed Perks program through the launch of gas rewards has been a highlight for DIY this year. Our field team has dialed the execution of this initiative in 2022. Year-to-date, active Speed Perks members have increased to 13 million. In Q2, we increased Speed Perks as a percent of both transactions and sales by over 300 basis points compared with the prior year quarter. Rounding out our top-line growth initiatives, we're executing our new store opening plan. In the quarter, we opened 43 new locations, including the recent opening of our flagship store in downtown Los Angeles. Our California expansion is already contributing to share gains in the West. Year-to-date, we've opened 78 new locations and remain on track to deliver our annual guidance of 125-150 new stores and branches. I'll now shift to the progress we're making to capitalize on our significant margin expansion opportunity, starting with category management. Our strategic pricing strategy starts with a deep understanding of the customer decision journey for each job, including the role of price. Obviously, the importance of price varies by both channel and job based on a variety of factors. As we execute our strategy, we can remain competitively priced, remove unprofitable discounts, and drive further gross margin expansion. Separately, we're streamlining and simplifying our supply chain to improve service and reduce costs. We continue to roll out a single warehouse management system across the Advance and Carquest D.C. network and are on track to complete the implementation by the end of 2023. We've also begun activating elements of our labor management suite of tools across our D.C. network and are beginning to see productivity benefits. Finally, in terms of SG&A, we're leveraging our labor management tool to do a better job of matching hours to transactions in our stores. This helps improve scheduling to ensure we're there when the customer needs us and offsets rising cost per hour inflation when transactions soften. In summary, during the second quarter, we're pleased that we were able to expand adjusted operating margins and deliver a record quarter of adjusted diluted EPS. We also returned nearly $700 million in cash to shareholders in the front half of the year. Over the long term, we remain focused on building a stronger customer value proposition for both Pro and DIY customers. While we expect that both the consumer and retail environments will be challenging in the back half of 2022, we also believe that the continued disciplined execution of our initiatives will enable sustainable long-term growth and margin expansion going forward. I'll now turn the call over to Jeff to review our Q2 financials and updated outlook for the balance of the year. Jeff? Thanks, Tom, and good morning. I would also like to thank all our team members for their ability to quickly adapt in this unique environment. In Q2, our net sales of $2.7 billion increased 0.6% compared to Q2 2021, driven by continued growth in our professional business and new store openings. Our comparable store sales declined 0.6%. As Tom mentioned, both net and comp sales were reduced by approximately 100 basis points due to increased owned brand penetration. Adjusted gross profit margin expanded 166 basis points to 48% through the combination of our strategic pricing actions and the benefit of higher margins associated with owned brands. These improvements were partially offset by continued product cost inflation, which was an 8.8% increase on a same SKU basis in the quarter, along with headwinds associated with product and channel mix. While we realized planned cost savings in supply chain, these were more than offset by wage and transportation inflation. Our Q2 adjusted SG&A was $967 million or 36.3% of net sales. This compares to $926 million or 35% of net sales in Q2 2021. Our largest headwind to SG&A in the quarter was higher inflation in wages and fuel. Additionally, we incurred anticipated startup costs related to our California expansion. However, with over 50% of our locations open, they are now contributing incremental revenue and operating income. Finally, costs related to our anticipated channel mix shift to professional were higher than a year ago. These SG&A costs were partially offset by favorability in incentive compensation as we lap higher bonuses resulting from our strong performance last year. We also saw improvements from last year's productivity efforts related to our corporate restructuring and reducing our office and store footprint, along with lower COVID-19 related expenses. As we look at SG&A going forward, we're experiencing higher inflation than we estimated when we provided our original 2022 guidance. We now anticipate higher inflation in wages and fuel will continue, and this combined with a softer than expected top line will result in SG&A deleverage in Q3. However, we remain focused on leveraging SG&A in the back half of 2022. Our Q2 adjusted operating income was $312.8 million, an increase of 3.6% compared with Q2 2021. Our Q2 adjusted OI margin rate of 11.7% was an increase of 34 basis points compared with Q2 the prior year. Our adjusted diluted earnings per share of $3.74 increased 10% compared with Q2 2021. For the first half of the year, free cash flow was $97.3 million, compared with $647 million in the first half of 2021. This was largely driven by working capital, particularly inventory and receivables. We expect significant improvement in working capital metrics in the back half, as reflected in our updated full year guidance for free cash flow. In addition, we continue to invest in the business, and our Q2 capital expenditures were in line with expectations at $96.4 million, bringing our year to date capital expenditures to $211 million. In addition to the strategic initiatives Tom reviewed, we continue to return excess cash to shareholders through a combination of share repurchases and our quarterly cash dividend. In Q2, we returned $200 million to shareholders through the repurchase of approximately 1 million shares for an average price of $199.02, and approximately $90 million through our quarterly cash dividend. Our board also recently approved our quarterly cash dividend of $1.50. Importantly, despite macroeconomic pressures, we have returned $694 million to shareholders in the first half of 2022, which is more than triple what we returned in the same time frame of 2019. Shifting to the back half of the year, our original guidance in February included the estimated impact of several factors, such as lapping stimulus and elevated inflation. However, we did not anticipate total inflation to be at a 40-year high. In addition, the increases in fuel prices during the second quarter far exceeded our expectations. As we described earlier, we're seeing evidence these two factors are putting a strain on DIY customers. Combined with our front half results, we're providing updated ranges for our 2022 guidance of net sales of $11 billion-$11.2 billion, comparable store sales of -1% to flat, adjusted operating income margin rate of 9.8%-10%, adjusted diluted earnings per share of $12.75-$13.25, a minimum free cash flow of $700 million, and share repurchases between $500 million and $600 million. We're maintaining our previously provided ranges for income tax rate of 24%-26%, CapEx range of $300 million-$350 million, and new store and branch openings of 125-150. To close out our prepared remarks, our goal is to deliver top quartile total shareholder return as outlined in our 2021 investor presentation. The midpoint of our updated 2022 guide for adjusted diluted earnings per share is up 8% when compared with 2021, and represents a 60% increase to the comparable 2020 base period for our three-year plan. We remain focused on the disciplined execution of our strategic plan, and I want to once again thank our team for their dedication in serving our customers every day. With that, let's open the phone lines to questions. Operator? At this time, if you would like to ask a question, please press star, then the number one on your telephone keypad. Again, that's star, then the number one to ask a question. Your first question comes from the line of Christopher Horvers with JPMorgan. Thanks, and good morning. My first question is, can you talk a bit more about the cadence of the quarter? You've provided some granular detail in the past. As gas prices have receded, did you see a return to positive comps? Then can you give some color on what you've seen quarter to date? Hey, good morning, Chris. As we talked about in our remarks, DIY was really the driver of the performance in the second quarter. We've been looking at our sales on a multi-year stack basis for quite a while. Early in the quarter, our three-year stack and one-year comp sales were the strongest in the quarter. As we went further into it, our top line slowed, and it was really DIY that was the majority of the shortfall versus expectations in that time frame. We expected the three-year stack for DIY to be similar to what it was in the first quarter, and it just wasn't. We attribute that primarily to the broader consumer dynamics that you've heard from many others, significant inflation, rising fuel prices, which really pressured lower income consumers and caused them to make some choices on discretionary purchases. We saw that. We saw discretionary categories like appearance chemicals and accessories were very soft for us in the quarter. It really was DIY that was the driver, and that's what changed as the quarter went on. We're not gonna talk about specific numbers quarter to date, but what we have done is embedded our quarter to date performance into our full year guidance, which you saw in the back half as -2% to -0% for the back half of the year. Got it. You know, if you mentioned DIY, it was down low single digit, presumably that's a comp. On the three-year basis, it looks like DIY actually improved, whereas do it for me, you know, decelerated and you know, that would foot to do it for me up low single digits. You know, that's well below what others are posting in the industry and the structural growth rate of the industry. I'm just curious, can you expand more on what you were referencing earlier around the pricing efforts? It sounds like basically you're eliminating unprofitable customers and that's what's driving the relative performance in do it for me. Yeah. I think you have that right, Chris. I mean, I think the short answer is we're executing a very different strategy right now. Our strategy is to essentially grow above the market and expand margins at the same time. We talked about the fragmentation in the industry many times. We believe there's lots of room for us to grow above the market in the coming years. Right now, the biggest opportunity we have at Advance is to complete the integration of the company and improve our margins, which is unique to us, I think. In the back half of the year, that means we're gonna execute our category management plan, which includes a deliberate, intentional move to increase own brand penetration. We talked about this opportunity we have with strategic pricing. We built a terrific team there. You know, we stood the pricing software package up about a year ago. We knew we could get to localized pricing in DIY and ultimately into DIFM. We're now leveraging the full capabilities of that tool, and we are removing unprofitable discounts really in all trade channels. Inside of pro, this particular action may mean we're gonna leave some unprofitable sales on the table in the back half. We firmly believe this is the right strategy for us. We recognize that we didn't grow above the market in the quarter, but we did grow margins to a quarterly record, and we grew earnings per share by 72% on a three-year basis. Our long-term goal is to grow above the market and expand margins, and that's what we're executing right now. My final question is just as you think about the three-year plan that you laid out and your thoughts on getting to that 10.5%-12.5% and delivering the total shareholder returns that you've laid out, how are you thinking about your ability to get into that range next year? Yeah. Well, right now, obviously, we're focused on finishing 2022 and beginning 2023 as strong as possible. Let me react to the specific targets we laid out. The short answer is, based on what we know today, yes, we believe we can get inside the ranges that we laid out. We laid out goals for 2021 through 2023, as you remember, for net sales, for earnings per share, for margin rate, and a number of other financial metrics. We believe we can get inside the range on all of those key metrics. We do see the margin rate at this point is gonna be the most challenging, given the inflationary environment that we're dealing with. We still believe we can get inside of that range, and we're excited about continuing to execute our plan to do that. I will reinforce this is obviously a point in time assessment. We've got a lot of volatility in the current environment. There's several macroeconomic factors out there that are difficult to predict as it relates to 2023 right now. We plan to provide annual guidance as we usually do next February in 2023, and we'll have a lot more insight into just exactly where we're gonna finish within the framework we decided. The one thing I would add, Chris, is we also believe that beyond 2023, there's continued opportunity for growth and margin expansion for us beyond that. Got it. Thanks very much. Your next question comes from the line of Michael Lasser with UBS. Good morning. Thanks a lot for taking my question. Your adjusted operating margin and gross margin were up, but your GAAP gross margin was down. Can you explain why that was the case? Your free cash flow was under a significant amount of pressure, suggesting that the GAAP gross margin is more a reflection of what's happening with the cash flow. Can you explain that as well? Yeah, sure, Michael. Let me start with the GAAP margin. If we were to include the LIFO expense into our adjusted results, we would have deleveraged 30 basis points versus last year, which I think is what you're focused on. Just in terms of context, from a dollar standpoint, the LIFO, you know, benefit from an adjusted standpoint was $92 million this quarter versus last year when it was $39 million. You know, you have that increase of $53 billion. You know, let me give you some context around this. It's really important that we frame LIFO into our broader gross margin plan. What I mean by that is we've got a very comprehensive strategy to improve our gross margin rate over time. The execution of our strategic pricing initiatives, we've talked about a lot of that in our prepared remarks, the expansion of our own brand portfolio, optimizing supply chain. These were all the contributors that drove our 166 basis points of adjusted gross profit. Now looking forward, as it relates to LIFO, we know the products, we know the categories, we know the SKUs that are driving these inflationary costs that are sitting on our balance sheet. We're able to model how and when these costs come off the balance sheet, whether it's a FIFO basis or whether it's a LIFO basis. We've incorporated these inflationary costs and the related headwinds into our guide. That includes these higher product costs coming off the balance sheet. It's important to note, Michael, that we're already seeing that today. This is not something that's looming. This is not something that's late 2023, 2024. We're experiencing it in Q2. We're going to experience it in Q3, so forth and so on. That's all very much contemplated in what we've done in the back half guide and then once we guide in February for 2023. Now, as it relates to free cash flow, specific to the guide, it's really attributable to the top line guidance that we provided yesterday. It's important to keep in mind, in the first quarter, we had free cash outflow of $170 million, and we outlined all of the factors that went into that, largely anticipated. If you look at our free cash flow discretely in the second quarter, significant improvement. We had free cash inflow of $267 million, and we do anticipate that the back half to be more in line with the second quarter, which, you know, gives us the basis for our revised guidance of $700 million. We, you know, we believe our receivables, we're gonna be collecting on those. We believe our inventory is gonna be coming down in the back half. You know, those factors, along with the revised guidances, is why we have the minimum of $700 million of free cash flow. My follow-up question is, Jeff, would you expect the LIFO gross margin to turn positive this quarter or in the next few? Over the back half, it's very difficult to say. We continue to believe we're gonna be in an inflationary environment in the back half. You know, sequentially, we think it's gonna moderate, but year-over-year in the back half, we think inflation, including product cost, is gonna be higher. You know, if we think about just LIFO, for example, we've had about $175 million in LIFO expense in the first half of the year. We're thinking it could be $250- $275. It could be another $75 million-$100 million more in the back half. Okay. Thank you very much. Your next question comes from the line of Simeon Gutman with Morgan Stanley. Good morning, everyone. Hey, Tom, I wanted to ask about strategic pricing. I wanted to ask if you, I guess, accelerated the strategy in the last, call it, quarter. In the past, it felt like you've done it in a way to minimize the elasticity. It sounds like the stuff that's happening now and maybe into the back half is having a greater impact than what we thought, or maybe it's just a timing thing. Hey, good morning, Simeon. I think what we laid out in our Investor Day about a year and a half ago was the plan for strategic pricing over time. You know, we talked about life cycle pricing. We talked about how we were gonna approach it. We talked about the ability to localize and essentially price literally by channel, by store, by customer, et cetera, et cetera. It took us a while to stand up those capabilities. We were able to get to that on the DIY side in the early part of this year, and we knew that DIFM was gonna be in the back half. These are difficult decisions, obviously, to your point. When we looked at it, you know, obviously the environment has changed, you know, versus what we anticipated heading into the year. For us, the right strategy is to make sure, you know, that we are spending money very wisely as it pertains to discounting in the professional sales channel. Our biggest opportunity is to get those margins up. You know, we've obviously looked at the competitive landscape and what's going on by product type and where there are, you know, where there is pressure. For us, this is the right strategy for us to execute, and it's definitely the long-term play. Separately, we're continuing to build out our value proposition in Pro those areas that we think matter most to the customers, which I'm happy to speak to, but that's really the approach. Thanks. That's helpful. And then just to follow up, the private brand penetration, if we heard it right, was 200 basis points year-over-year growth in the quarter. Is the spread between the private brand gross margin and national about the same? Can you quantify it? And then maybe can you just quantify the contribution it had to overall gross margin in the quarter? Yeah. We're not gonna break it out specifically, but what I can tell you is within category management, we outlined three broad territories: strategic pricing, own brand penetration, and sourcing in that order. Own brand penetration is a significant contributor. We basically laid out 180-200 basis points of margin expansion on our Investor Day presentation, so it's the second largest. We clearly see further runway there. I mean, we're definitely getting meaningful contribution to margin expansion today with our own brand expansion. We expect that to continue in the back half. It's gonna continue into 2023 and candidly will continue into 2024. It's gonna take a while, and we're continuing to improve the overall impression of those brands. DieHard's doing well. Carquest is doing well on the professional side. We're very excited about it and we're gonna continue to execute against it. Okay. Thanks, Tom. Good luck, everyone. Thank you. Your next question comes from the line of Bret Jordan with Jefferies. Hey, good morning, guys. Morning. Morning. On the second quarter, and then I guess the outlook for the second half, what does that comps, you know, I guess, explain in inflation versus units? What was the price contribution? Because I guess obviously own brand is lower price point, so maybe adjusting for mix, how did that shake out? Yeah. Well, units for everyone in the industry are down, primarily driven by DIY, Bret. As I think we called out at the beginning of the year, DIY is about 60% of our units, right? Those lower price per unit items in DIY tend to drive that number. But our Jeff called out our cost inflation in the quarter, which was eight- 8.8 8.8%. You should assume our pricing was slightly above that, because we are, you know, essentially pricing to, you know, to at least keep rate neutral or better. That's kind of where it is. Okay. I guess as on the second half outlook, the -2% to -0%, yeah, I think you're lapping harder inflation comps in the second half of last year. Yeah, that's factored in. Yeah, we recognize that. You know, we looked at the, you know, the broader industry, you know, the retail landscape in total, which, you know, as you know, we're not seeing consumption growth in the broader industry. I mean everyone is seeing units down, and all of the growth in retail is coming from pricing at this point. We looked at the industry performance. You know, we can only see DIY and when our peers report. You know, we expect that, you know, transactions and units will continue to be, you know, below a year ago in the back half. Then obviously our own initiatives. In our case, we've got a particular initiative on strategic pricing that's gonna impact our top line a little bit, but it's gonna drive our margin performance. Those are the factors that went into it. Okay. I guess the outlook on payables ratio in the second half, you know, as a contributor to cash flow, where do you see that? I mean, I think you were running in the 80s, but not significant expansion on the second quarter, but how do you see payables growing? Is that gonna be impacted by the private label own brand strategy? Is that more or less likely to get extended payables? Yeah. Just from an overall, you know, payable ratio, you know, in Q1, we did some forward deployment related to inventory, so it was less impacted by payables. It was more impacted by the increase in the inventory as we did the forward buys to avoid, you know, disruption primarily related to China lockdown. You know, we talked about the Olympics. We talked about Chinese New Year. So that's really what's kind of pressured our AAP ratio. You know, we did improve from Q1. We expect that to continue to improve. It's gonna be a combination of both payables and inventory because we expect inventory to come down in the back half. That coupled with our, you know, our ongoing efforts in AAP, we expect to see improvement over the back half in our AAP ratio. Okay, great. Thank you. Your next question comes from the line of Scot Ciccarelli with Truist. Good morning, guys. Scot Ciccarelli. You guys talked about significant softness in your discretionary DIY sales. Can you guys help provide some color on how big that segment is as a percent of mix? Well, first of all, just to make the point, I think you know, Scott, the non-discretionary categories are much larger, right? When we're talking about our business, that's what we love about the auto parts industry. You know, batteries, brakes, you know, failure-related parts are much larger. At the margin on the DIY side, you know, things like accessories and appearance chemicals are pretty sizable. Certainly at certain points of the year, they're bigger than others, in fact, in Q2. You know, we definitely saw softness in those discretionary categories. I think what's happening is, you know, the low to middle income customer, you've heard about all these quintiles and things like that from others. You know, these customers are obviously paying significantly more for food, they're paying significantly more for gas, and they're making choices about where they spend their discretionary money. What's a little bit difficult to tease out in DIY is part of the benefit we saw in appearance chemicals and accessories over the last couple of years was related to people being at home and having time on their hands, we believe. That will moderate as we get into the back half. You know, obviously, very important categories for us. We're gonna continue to stay focused on them. They've been soft for the entire industry, but, you know, over time, that's gonna normalize. Tom, just to clarify for everyone. The overall DIY, including the failure related parts, you know, everything was negative with particular softness on the discretionary side. Is that the message we should be walking away with? Yeah. I mean, the non-discretionary were up, but the discretionary categories pulled the number down because they were down pretty significantly. Non-discretionary was up. Okay, that's what I was looking for. All right, thanks, guys. Your next question comes from the line of Seth Basham with Wedbush Securities. Yeah. Hi, this is Nathan Friedman on for Seth. My question is following up on the 2023 operating margin target question. You initially provided some building blocks in category management, supply chain, SG&A, and the negative impact from inflation relative to 2020. Can you possibly quantify what you realized to date relative to these targets? How much higher inflation is relative to this plan? And what, if anything, is or could be running ahead or behind schedule at this point in time? I'll let Jeff speak to how much ahead of plan inflation is. I mean, the biggest variable is inflation. I think in terms of us executing our targets, Nathan, we are executing our plan. You know, the category management initiatives are very much on track. We still see further upside with category management. As we said earlier, we're starting to execute that, you know, more versioned strategic pricing platform. We're gonna continue to drive own brands. In terms of supply chain, we're making a lot of progress. I mean, we are in a position where we're now opening brand new distribution centers that are much more modern. You know, the team's doing a terrific job transitioning very old, I would say, antiquated facilities. As an example, Riverside, California, we've moved into a brand new building in San Bernardino, California. Up near Toronto, we've moved from a, you know, a very antiquated building in Rexdale to a new building in Bolton. Both of those are gonna be operational in the fourth quarter. That's gonna really help us improve our service to customers and reduce our cost over time. You know, we are executing against the supply chain initiatives also. Then, you know, within SG&A, we're executing against those initiatives. We're gonna continue to execute the initiatives. What has been the wild card is the inflationary costs in things like fuel and wages, which I don't know if we can quantify it, Jeff, but it's a very big number versus what William was anticipating. Yeah, I can give you some color. When we did the Investor Day in April, we said 280-290 basis points, which was largely covering, you know, non-product inflation. We said that was embedded in our category management. You know, just some data points, fuel is up 50%. You know, we certainly didn't contemplate that. Wage, you know, mid single digits. You know, 2-3x what we had anticipated. You know, we did not anticipate 5%, 6%, 7% wage inflation. We did not anticipate 50% inflation in fuel. You know, if we were to redraw that chart, that last red bar that we had there in April would certainly be bigger and so would the green bars to the left of it, you know, overcome that so we can still hit our 10.5%-12.5%. Got it. Thank you for that. My follow-up is just on the SG&A near-term guide. You mentioned expectations for 3Q deleverage, but I believe second half overall leverage, if I heard this correctly. Just curious if you could provide a little bit more color on these expectations and some of the drivers just beyond the prospectively lower sales outlook. Thank you very much. Yeah. Well, what we said originally was, you know, first half was gonna be heavily driven by gross margin, and that certainly was the case. Second half, you know, we're gonna continue to see benefits from gross margin. As it relates to SG&A, our goal is to leverage SG&A in the back half. But there's some puts and takes there, and then so let me just give you a little bit of perspective. 'Cause it looks a little different relative to what we expected in our full year guide in February, and what we just talked about first. You know, while inflationary costs in store payroll and fuel, they're moderating sequentially, but these costs are much higher than what we originally expected. Look, you know, we've got to pay these. It's important that we stay competitive in wages, you know, in our stores, for example, make sure we're fully staffed, serving our customers. Now, what we can do is to continue to leverage our demand-driven labor tool that we call My Day, you know, to help offset this cost per hour inflation. We still have the tailwinds. You know, we're gonna get the benefit from last year's corporate restructuring. We had the rent reduction initiatives, and we're lapping. In the second half, we're lapping last year's investments in our California expansion, and we're opening more of these stores. The sales from the stores help offset the costs that we're incurring. We do expect the benefit from last year's higher incentive compensation. We've taken all of these factors, along with the moderation of our top line and incorporated into our updated guidance. Just a quick follow-up on that. When will you be opening all of the California stores? Hey, we're pretty excited about the performance out there, Nathan. We're focused on hitting the 125-150 guide in total. We are balancing, you know, some of the new store openings we have around the country with the store openings in California. We're gonna get as many of them open this year as we can. Some of them may move to the first quarter. Overall, very pleased with the performance out there. We were out there recently. We've got a partnership with the Dodgers that has really resonated with the Hispanic community. We can see our market share gains out there. You know, we're making a lot of progress out there. I feel really good about our performance, and we're gonna stay focused on that market. It's a very important market, as you know. It's one where we have very little penetration. We've got nice overall professional business with Worldpac, so that's where we're gonna leverage our enterprise assets to bring that whole package together. You know, so the DIY business that we're getting from the converted stores, but also a very large professional opportunity in Southern California. On track to get these stores open soon. As I mentioned earlier, the San Bernardino D.C., once it's fully operational, is gonna help us immensely out there. Great. Thanks for the call, guys, and good luck going forward. Thanks. Your next question comes from the line of David Bellinger with MKM Partners. Hey, thanks for taking the question. On the impact to sales and comps from the own brand shift, how long can that pressure linger? Should this be the peak of the impact in terms of magnitude at about 100 basis points? If you could share with us anything that's embedded in the back half guidance. Hey, good morning, David. I think it's you know, we don't see it as lingering. We see it as a good thing. I mean, the performance of these brands drives our margins and, you know, it has a lower cost per unit than the alternatives that are out there. You know, in this environment where our customers are looking for value, and particularly the professional garages are looking for value, this is something that they want. Now it pulls the comp sales number down for sure, because you have a lower price per unit. You sell 100 units, you know, the alternatives that we have are priced at a higher price per unit than the own brands. We see that honestly, potentially accelerating in the back half and then into 2023, and then it'll moderate over time. We've said before that the own brand penetration that we have is below, you know, what we're targeting over time, and we believe below what our peers have already done for many years. We're gonna continue to focus on that and, you know, continue to forge a, you know, stronger relationships with our national brand suppliers because they're very important to us too. You know, we have a very wide selection of national brands and OE parts that are extremely important to our overall value proposition. It's a balanced approach, but the success of DieHard and Carquest is something that will really help us deliver on our goal of profitable growth. Got it. All right. My second question, you mentioned a couple of times the better matching labor with in-store traffic and demand. What's the timeframe for getting that system fully in place, and how do you size the potential labor savings attached to that? Well, I'm really pleased with how our field team is managing this, David. I mean, we stood up a tool, Jeff mentioned it, we call it My Day. You know, we're a little bit, I would say we had a pretty good size opportunity, you know, in terms of how we staffed. Once again, you know, we're rebuilding a lot of things in the company with really great leaders, with improved technology and improved processes around it. We've got a great field leader. The person that runs this side of the business just came out of a region vice president job. He's got extensive experience in this area, and we're using the technology tool the way it's been designed, which is to really look forward at the transaction outlook. Obviously, the lower the transactions, the less hours you need. When you need more, when you see more transactions coming, you have to increase hours. We're matching that up against the hours that we're issuing, and then we measure obviously our performance of issued hours to scheduled hours and the like. Much more rigor around it, much more success around it. Our field team's doing a really good job executing it. When we get past the back half, we want transactions to go back up. It's just a temporary situation where the DIY business in particular, we expect to be soft on transactions in the back half, and that enables us to offset cost per hour inflation as we said. Appreciate it. Thanks, Tom. Your next question comes from the line of Michael Baker with D.A. Davidson. Okay, thanks. Two questions, one short term, one longer term. Just to confirm, if you said it, I apologize, but the DIFM business seems like it was positive, you said, but where was it relative to plan? How did that perform versus your expectations? Yeah. Good morning, Mike. DIFM was relatively close to plan in the second quarter. You know, DIY was you know the driver of our shortfall versus expectations. Part of that was, you know, we knew what we were gonna be doing in DIFM. You know, we are executing a different strategy as I outlined earlier. As we look at the back half, you know, that's when we really fully implement, you know, what we're talking about here in terms of version, more localized pricing, and elimination of we would say unprofitable discounts in the professional channel. Okay, makes sense. I guess it's a long-term question to follow up on that. You know, doing away with those unprofitable discounts in DIFM, so presumably you're giving up share to someone. As you've done this, any idea who's coming in and taking that business that you're giving up? That's a very difficult thing to say. You know, we're obviously very aware of the competitive landscape and, you know, we obviously look at it by category. We look at it by product, we look at it by geography. Those are the big things, and by channel. You know, we know from an internal perspective, we balance, right, the share of wallet opportunity we have with each customer on the professional side with the return on investment we get. You know, in some cases, you know, our large strategic accounts, our large TechNet accounts, you know, we lean in heavily with those accounts and we're very mindful of what's going on there. Our goal obviously is to continue to better serve those customers and drive share of wallet with those customers. What we're talking about here is at the margin, you know, discounts that we're offering to very low share of wallet customers where we don't have a large presence. By strengthening our value proposition and focusing what we're doing in Pro on those things that matter to those customers in those areas, you know, we believe we'll be able to grow faster long term. Okay, that makes sense. If I could follow up, and maybe you can't answer this, but if you're giving up that business, why would someone else come in and take that business? Is it in your view, is it that they're willing to take a lower margin, or does someone else have a lower cost to serve for some reason? Do you have any view on that? Yeah, that's obviously a difficult thing to say. I mean, we don't look at it in isolation, though. I wanna reinforce that. I mean, it's not just about, well, this particular discount or deal that we're offering doesn't provide the adequate return. We look at it with, you know, our longer term objective. You know, we have to set priorities. These are difficult decisions. You know, they're tough decisions. You know, we all looked at this, you know, again, multiple times this year as we went through the year, and we believe this is the right strategy for us. Perfect. Thank you. Appreciate the color. Thank you. Your next question comes from the line of Emily Hyde with Evercore ISI. It's Greg Melich from Evercore ISI. My question's really twofold. One is on Pro and then the Pep Boys stores. First on the Pro units, were those up in 2Q, given inflation was probably less than Pro? Units were down in Q2, Greg. I think, you know, that's been a bit of a multi-year trend. You know, the units were down. Part of that is just the price per unit. The average selling price per unit is up significantly as you know, so units were down. In your second half guide, would Pro units also be down? Yes. Got it. The second question was on the converted stores. I think it was like 100 some leases that you got from Pep Boys. How many of those are actually converted now? Is that all in the 125-150 this year? Yeah. We incorporate what we're going to open in the 125-150. I think we gave the number year to date. Over half. Over half. Over half. In total, we're at 78, I think or. Year to date. Yeah. I mean, our year-to-date new store openings are on track to get to the 125-150. Yeah. Got it. Remind me, when you open those aren't in the comp. Do they stay out of the comp for 13 months when you convert? That's right. Yeah, 13 periods, roughly a year. Our 13 periods, and then once it hits that, you know, 14th period, it then goes into comp. I guess maybe to follow up on those, I mean, how are those going when you get them opened? It sounds like what sort of lift are you seeing? You know, what's the mix of business showing you? Yeah, we still have a big opportunity on Pro, Greg. I think you know that the stores themselves were primarily DIY, which is great. You know, the DIY business is somewhat established, you know, by Pep Boys previously. You know, the DIY business is still the majority of the sales, which is different for us. You know, typically in Advance store, we're more 50/50, but these are much higher as a percent age sales on DIY, and that's the biggest opportunity for us. We've got our large national accounts that are out there that are really excited that we're opening the stores. Now we're able to service them in Southern California, which we have not been able to do in the past. That's gonna be the big opportunity for us as we get the stores open. Part of it is just getting density in Metro L.A. and some of the other urban markets, San Diego, et cetera, that we have out there. You know, once we get the, you know, the larger number of stores open, you know, we have more density, and then we can get more parts to the customer. Got it. I think it's hopefully a quick follow-up. You talked about how inflation was more than the product cost inflation in the second quarter. We know you are cycling more inflation back half last year. Should we expect year-over-year inflation to sort of decelerate to mid-single digits in the back half? Is that what's in your guide? Yeah, that's a good way to think about it. That's how we're looking at it. It's, you know, as we said, sequentially coming down, but year over year is still up. Got it. All right. Good luck, guys. Thanks, Greg. Your next question comes from the line of Zachary Fadem with Wells Fargo. Hey, good morning. Can you refresh us on your take for industry growth rates in 2022 for DIY versus Pro and how that's evolved since your initial expectations? As we look ahead, do you think DIY and Pro units can both grow in 2023? Hey, good morning, Zach. I mean, originally when we did our Investor Day, which again was a year and a half ago, we had DIY low single. Obviously as the year went on, it was a stronger year in 2021, pardon me, for DIY than we'd originally anticipated. That's when in February we said, "Boy, we don't know on DIY in 2022. It could be more challenging." I think relative to our Investor Day, 2021 better, 2022 probably slightly below. Obviously we look at the reported numbers of peers, you know, and we look at the syndicated data though which don't exactly match up, I can tell you. That's the short answer there. I think DIY in the back half of this year, knowing all of the things we know today, the inflationary pressures, we think that there's gonna continue to be pressure on the, on the discretionary income, and that's gonna put pressure on DIY in the back half. Sorry, remind me your second question again. Do you think units can grow? Units. in 2023? Units is a tricky question. I mean, transactions, you know, we do think transactions can grow. Units is a function of the complexity of a vehicle and how difficult the repair is and how parts change over time. Sometimes you need fewer parts to do the same job, but it's higher revenue for the job, right? We are focused on transactions there and driving transactions, and we do think they can grow in 2023. Got it. Thanks for that, Tom. Jeff, you had called out about a $20 million SG&A drag from the Pep Boys startup costs in Q1. Can you talk through how that trended in Q2 and the deleverage impact, and how you expect the drag to trend to as we move through the second half of the year and those stores start to open? Yeah. In the second quarter, it was not as high as what we saw in Q1. Obviously, you know, as we open those stores, they're not start-up costs anymore. We're getting revenue associated with those stores. That trend's gonna continue into Q3 and into Q4. While we expect to have start-up costs, they're gonna be significantly lower than what we saw in the back half of 2021. You know, net, it'll be a tailwind because we won't have as much start-up costs in the back half of this year as we saw last year because we really didn't have that many stores open in California last year. That's sort of how we're thinking about that. Got it. Thanks for the time, guys. Thanks. At this time, there are no further questions. I'll turn the call over to Tom Greco for any closing remarks. Well, thanks to all of you for joining us this morning. As we move into the back half of the year, we remain committed to the disciplined execution of our long-term strategic plan, including profitable top line growth and sustainable margin expansion. In turn, we're confident that we'll be able to return meaningful value for our shareholders. Importantly, while we're focused on transforming Advance and completing the integration, we also recognize the importance of giving back to ensure we're leaving the communities we live and serve better for generations to come. This includes the kickoff of our American Heart Association fundraising campaign in stores tomorrow. Our 2021 campaign was a record fundraising year for us, raising nearly $1.7 million to support the critical mission dedicated to fighting heart disease and stroke. We're incredibly grateful for the generosity of our team members, our partners, and our customers who are giving back, and I'm really excited to get back out into the stores next week and kick off this year's campaign. I'd like to wish everyone a safe and healthy end of summer and look forward to sharing more in November. Thanks for your support of Advance Auto Parts as we navigate the current environment while continuing to deliver on our long-term strategic priorities. Thank you for participating. You may disconnect at this time.